When is a property not suitable for use as a dwelling for SDLT?

Introduction

Many SDLT disputes turn on a simple but difficult question: was the property suitable for use as a dwelling on the effective date of the transaction? Buyers often assume that serious damp, outdated electrics, poor heating, drainage defects or planned refurbishment will be enough to make a property non-residential for SDLT purposes. In practice, that is a hard test to meet.

This issue commonly arises where a taxpayer has claimed a refund or overpayment relief on the basis that a house was uninhabitable when bought, and HMRC later opens an enquiry. The legal question is not whether the property needed work, nor whether it was unpleasant or inconvenient to live in. The question is whether, at the transaction date, it had crossed the legal threshold of being unsuitable for use as a dwelling.

The Question

A buyer purchased a residential property and later argued that it was unsuitable for use as a dwelling at the effective date of the transaction. The evidence relied on included a survey noting significant damp, possible timber issues, outdated electrical inspection history, uneven floors, drainage concerns, possible asbestos, and inadequate heating and ventilation. There were also photographs and repair quotations showing works needed after completion.

HMRC asked for detailed evidence explaining why the property was said to be unsuitable as a dwelling, including survey material, photographs, repair quotations, sales particulars and any specialist reports. The central issue was whether those defects were serious enough, on the purchase date, to take the property outside the residential SDLT rules.

Nick’s Explanation

Nick’s reasoning was that the case should focus on the condition of the property at the effective date of the transaction. In anonymised form, his position was that if a property is “too dangerous to live in and requires more than some renovation or repair”, it may be argued to be unsuitable for use as a dwelling.

He pointed to hazards by reference to the Housing Health and Safety Rating System, including damp and mould risks, potential electrical safety concerns, trip hazards, drainage defects, possible asbestos, and inadequate heating. He also relied on the survey, photographs and refurbishment quotations as showing that substantial works were needed to make the property habitable.

He further sought to pause the dispute pending appellate guidance in the Mudan litigation, on the basis that the meaning of “suitable for use as a dwelling” was under active judicial consideration.

That line of argument was understandable at the time it was advanced. However, the legal position is now materially clearer, and the threshold for showing unsuitability is relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799.

The Law

The SDLT rules distinguish between residential and non-residential property. For these purposes, a building counts as residential property if it is used or suitable for use as a dwelling, or is in the process of being constructed or adapted for such use.

The key statutory provision is paragraph 18 of Schedule 4ZA to the Finance Act 2003, which addresses when property is “residential property” for higher rates purposes. The same concept of suitability for use as a dwelling also appears more broadly in SDLT law and HMRC practice.

In practical terms, the test is applied to the property as it stood on the effective date of the transaction. The tribunal and appellate authorities have repeatedly drawn a distinction between:

• a property that needs repair, renovation, modernisation or reinstatement, and
• a property whose condition is so extreme that it is not suitable for use as a dwelling at all.

That distinction is critical. A property does not cease to be residential merely because it has defects, lacks up-to-date certification, needs a new kitchen or bathroom, has damp, has unsafe wiring, or requires extensive refurbishment.

The authorities also treat previous use as a dwelling as a strong indicator that the building retains the fundamental characteristics of a dwelling, unless the evidence shows that those characteristics have been lost or the condition is exceptionally serious.

Analysis

Applying the rules step by step, the following points matter.

First, the starting point is usually whether the building was plainly a house or flat and had previously been lived in. If so, that strongly suggests it remained a dwelling in legal terms.

Second, the condition must be judged at the effective date of the transaction, not by reference to later refurbishment plans, later expenditure, or the buyer’s intention to strip out and improve the property.

Third, survey findings must be read carefully. A survey may identify defects, risks, recommendations for further investigation and items needing repair. That does not automatically mean the property was unsuitable as a dwelling. Surveyors commonly recommend specialist reports and remedial works even where a property remains habitable.

Fourth, evidence such as damp, uneven flooring, uncertain electrics, heating defects, possible asbestos and drainage concerns may support an argument, but only if the evidence shows a sufficiently severe condition. General references to hazards or possible future risks are not enough on their own.

Fifth, specialist evidence matters. If a taxpayer relies on serious damp, structural instability, contamination, asbestos or other major hazards, the absence of a specialist report may weaken the case. A recommendation to obtain a report is not the same as a report confirming a severe condition.

Sixth, repair quotations can cut both ways. They may show that work was needed, but if the quoted works are modest in scale or cost, HMRC and the tribunal may treat that as evidence that the property was still a dwelling requiring repair rather than a building that had crossed the line into non-residential status.

Seventh, estate agent particulars and photographs are often important. If they show a furnished house with bedrooms, kitchen, bathroom and ordinary domestic layout, that can strongly support HMRC’s argument that the property retained the essential nature of a dwelling.

The most important modern point is the effect of Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799. Following that decision, the condition threshold in “uninhabitable” or “not suitable for use” cases is now relatively high. The courts have made clear that very few properties will fail the suitability test. Serious disrepair is not enough unless the evidence shows that, viewed realistically on the transaction date, the property was not suitable for use as a dwelling at all. The focus is not on whether the property was ideal, modern, mortgageable, attractive to occupy, or free from health and safety concerns. The focus is whether it still remained a dwelling in substance despite those defects.

That means many conditions commonly relied on in refund claims will usually be insufficient without stronger evidence, for example:

• significant damp and mould
• outdated or uncertified electrics
• missing or inadequate heating in part of the property
• uneven floors or trip hazards
• repairable drainage defects
• possible asbestos not shown to create immediate unsuitability
• the need for refurbishment after purchase

To succeed, the evidence normally needs to show something more extreme, such as a condition so dangerous or so fundamentally defective that a reasonable person would say the property was not suitable to live in as a dwelling at that date.

Outcome

The practical conclusion is that a property will usually remain residential for SDLT even if it requires substantial repair, renovation or modernisation. A claim that it was not suitable for use as a dwelling faces a demanding legal test.

Where the evidence consists mainly of a standard survey, photographs of defects, and repair quotations, HMRC is likely to argue that the property was still a dwelling needing works rather than a non-residential building. Following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, that argument is now stronger than before.

Practical Steps

If you are assessing whether a property may have been unsuitable for use as a dwelling for SDLT purposes, the sensible approach is to gather and review evidence in this order:

1. Obtain the purchase-date evidence, including the contract date, completion date, survey, valuation, photographs and sales particulars.
2. Identify the exact condition on the effective date of the transaction, not what happened later.
3. Check whether the property retained normal dwelling features such as a kitchen, bathroom, sleeping areas, services and ordinary domestic layout.
4. Consider whether any defects were confirmed by specialist evidence rather than only suspected or recommended for further review.
5. Assess whether the defects show mere disrepair and refurbishment need, or a truly exceptional condition making the building unsuitable as a dwelling.
6. Review the authorities, especially A & T Mudan v HMRC [2024] UKUT 307 (TCC) and Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799.
7. Compare the repair scope and cost with the overall condition of the property. Limited or routine remedial works often undermine an unsuitability argument.
8. If HMRC has opened an enquiry or issued a closure notice, analyse the reasons carefully and test each against the actual evidence available at the transaction date.

Conclusion

For SDLT, “not suitable for use as a dwelling” is a narrow category. A property can be damp, outdated, defective and in need of major works and still remain residential in law. After Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, the threshold for proving unsuitability is relatively high, so any claim needs strong, transaction-date evidence showing more than ordinary disrepair or refurbishment need.

Legal References Used

• Finance Act 2003
• Finance Act 2003, Schedule 4ZA, paragraph 18
• A & T Mudan v HMRC [2024] UKUT 307 (TCC)
• Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799
• Fish Homes [2020] UKFTT 180 (TC)
• HMRC SDLT Manual, including SDLTM00385

This page was last updated on 22 March 2026.

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